From PLAN (Planned Lifetime Advocacy Network) a membership-based non-profit organization, established by and for families committed to ensuring the safety, security and well-being of our relatives with disabilities.
RDSPs and FATCA: Warning to People With Disabilities With Any Connection to the U.S.
My comment and my sincere thanks to this incredible organization:
My friends at PLAN, I thank you so much for providing the WARNING STICKER that all Canadian Registered Accounts, including the RDSP, should have for anyone deemed to be a ‘US Person’ in Canada. It is negligent that this has not been accomplished before now by those who offer these products. (I have paid over $2,000 in US taxes for the Canadian government’s contribution of bonds and grants to my son’s RDSP, for which I am the Holder. There is no other way to say it — these are $$$$ stolen from Canada’s taxpayers who provided the funds for those grants and bonds — and also from the Canada’s treasury to go to the US.)
I object to my Canadian-born son (born to me in Canada before I became a Canadian citizen in 1975) now being being referred to by the Canadian government and the Canadian Bankers Association, respectively, as “a U.S. citizen resident in Canada” and “a U.S. taxpayer resident in Canada”. He has never been registered with the US, never lived in the US, never got any benefit from the US – only from Canada and for those benefits I am forever thankful.
Hopefully, I am no longer described that way as I have officially renounced my US citizenship and now have a Certificate of Loss of Nationality that I can show my local CANADIAN “foreign financial institution” when I am asked if there is any reason the US would consider me a ‘US person’ in order to turn over account information to the CRA to then turn over to the US IRS. I cannot renounce on behalf of my son, even with a court order.
I can’t thank you enough, PLAN, for the needed warning to Canadian families who would not have an ounce of extra strength left over after caring for family members who have some type of disability to deal with US tax and financial account reporting to the US on top of that. In addition they most likely do not have any extra money to fork out to US tax law and accounting professionals year after year after year for compliance of US tax and reporting for which there would likely be no taxes owed. I was “lucky enough” to have retirement savings to pay for coming into compliance. Some families may be like my family and have a son or daughter who would be entrapped into US citizenship and this year-after-year-after-year absurdity and stress for no (or very little) actual tax owed to the US.
Bless you for saving other families what mine has experienced in the past several years. This is just the awareness I’ve been working for.
US Persons in Canada are now deemed 2nd class citizens — and this should not happen to Canada’s most vulnerable.
This, my friends at Isaac Brock, is the awareness to the right families that I have been working for. I will sleep a little better tonight KNOWING that this information will now better get to the ones I want it to reach.
This is fantastic. I sent this to my NDP MP, Mulcair and Rankin.
It should be sent to the media.
I just sent the link to my MP also.
…and for this, Finance Minister Flaherty’s endorsement of the RDSP, I just don’t know what to say…
James Flaherty Applauds the Canadian RDSP
Perhaps Canada’s most vulnerable with ‘US Person’ designation don’t deserve the benefits of this innovative plan as any other Canadian gets, no matter what their “national origin”.
I am just incredibly sad that after all of Mr. Flaherty’s hard work for the RDSP coming into being, like the Charter of Rights and Freedoms does not provide the same rights for ALL Canadians, the RDSP for a US Person is out of reach as a means for families to save for the futures of their family member(s) with a disability, futures that will have more expenses than for most.
Mr. Flaherty has had a role in that “exclusion” from any others for benefit of the RDSP to the US Person in Canada who has a disability. They are not even now called Canadians, but US taxpayers resident in Canada. It just shows me hypocrisy from Mr. Flaherty.
He says it is an exempt account. Yes, exempt for the “foreign financial institutions” to report to Canada Revenue Agency, one good step. But, there is no exemption for the tax reporting required of a ‘US Person’ individual or family member Holder of the RDSP as a “foreign trust” to the US IRS.
This is great and I would never have guessed there is an rdsp.com. PLAN is certainly an organization which is on top of the RDSP tax injustice due to US CBT and I imagine calgary411 has played a part in that.
Thanks, northernstar and WhiteKat,
I did the same — as well as my media contacts (the ones who have interviewed me).
I forwarded this to two people I know in the EU parliament.
The long and short of it is the US is trying to make US Tax Law the ‘minimum’ a ‘US Person,’ should theoretically pay in tax, disregarding those little taxes you pay to your resident country such as VAT, Social Charges, and Fees.
What makes matters worse is the US considers your overseas pension as ‘Passive’ Income which is not eligible of Foreign Tax Credit against any US Tax Liability.
At the same time you receive no Medicare, or other US Government services abroad.
FATCA Off.
Calling all non-US Passport officials – there’s $2500 fee available from dual US / other country citizens who will change their ‘place of birth’ on their Canadian, EU or other non-US passport to outside the US to avoid FATCA at FFIs.
We do not want a new identity just a new place of birth.
It’s money well spent to avoid FATCA crusaders such as Schumer and others.
It’s great that organizations such as PLAN are beginning to get the word out to those who are affected by FATCA and still don’t know it. Unfortunately, someone who has their “Oh My God” moment while reading this article might be very confused by the following sentence:
“Although the Canadian government has negotiated for a number of registered accounts to be exempt from FATCA taxation, including RDSPs, their accounts would still need to be reported, or the plan holder will face serious penalties.”
In fact, there is no such thing as FATCA “taxation”. And “still need to be reported” *to whom*? I think the following would be a more accurate wording:
“The Canadian government has negotiated for a number of registered accounts to be exempt from FATCA reporting, including RDSPs. However, their accounts would still be subject to taxation by the United States and would need to be reported annually on their IRS tax return or the plan holder will face serious penalties.”
I hate to be a picky wet blanket about wording but I think it’s important.
If anybody else agrees with me would it be possible to request PLAN to alter the wording on their blog? I’m MuzzledNoMore when it comes to IBS and writing to politicans, but no where else, I’m afraid.
MuzzledNoMore,
I agree and have sent your comment and additional information on to PLAN, requesting a change in that wording. Thank you!!!
@Don
A passport is a bona fides that the person carrying it is a citizen and is who the passport says it is. To falsify this information would be to damage the country’s reputation. It won’t happen.
I am not sure how effective a change of birthplace might be. I have not entered the US for three years or so, but when I did, my Canadian passport was run through a machine. What did it record? I don’t know, but perhaps it included place of birth. If so, a change to my current Canadian passport might not help.
@ DON
…”What makes matters worse is the US considers your overseas pension as ‘Passive’ Income which is not eligible of Foreign Tax Credit against any US Tax Liability.”…….
I think it needs to be emphasized here that many expats do not pay taxes on their employer pension contributions to avoid double taxation.
YOU DO HAVE A CHOICE !
As we all know foreign pension plans are not US qualified plans and therefore any growth (income or gains) in the plan during the tax year should be included in your taxable income.
BUT……..
There is an option to treat the pension similar to a US qualified pension under many of the US income tax treaties and therefore enjoy the deferral of tax until distribution (you attach Form 8833 to your Form 1040, making the relevant elections to invoke the treaty provisions to protect you from the IRS ).
1. rely on articles 18,23,24
2. IRC provisions 61 and 401 are overruled or modified
3. Forms 3520 and 3520-A need not to be filed
Researcher,
Are you showing that this should apply to the Canadian RDSP? I don’t think it would. See below and let me know what your opinion is. Thanks.
http://isaacbrocksociety.ca/2012/05/23/canadas-registered-disability-savings-plan-rdsp-canadas-finance-minister-flaherty-responds-regarding-this-as-well-as-the-resp-and-tfsa/
From May 16, 2012 letter from Canada’s Finance Minister Flaherty:
@calgary411…………
my advice was meant for US expats living in europe
@researcher.
You have lost the plot. Having to go through all the machinations you outline and expect every US person to understand is absurd.
No other nation on earth expects its so called dual nationals to jump through so many hoops for a pension plan in some other country.
Expats from my experience tend to follow their residence rules very closely and correctly. They are not “getting away with anything” which some may tend to think. Its extremely costly to hire a professional overseas to do the US work for you!!! H&R Block is not at OUR local Wal-Mart.
By way of example, Senator Cruz for months has been trying to renounce his Canadian Citizenship. To be honest, from my vantage point its simple and you can do it by mail and it only costs $100. Guess what, this man a US Senator with an expensive education as a lawyer still can not get it done!!
Conclusion? There is no sane reason to require expats who are in full compliance locally and in most cases paying more tax than they would in the USA to require them to do a US Forms exercise all under the threat of massive life changing penalties for doing the most minor thing wrong.
My friend, look at this very forum!! These brothers and sisters are sick with worry, they are terrified of their place of birth or by some other connection. And I do not mean terrified tongue in cheek, we are suffering real life altering health issues because of an obsession over forms that have to be done precisely.
So what you outlined is “simple” to you but frankly its daunting to most expats!! Just like Senator Cruz can not figure out how to renounce his Canadian Citizenship. Plus we are damn terrified of doing something wrong. And we do not have the money to pay to get it done.
………RDSP, a TFSA or an RESP can be set up to pursue financial objectives other than the exclusive provision of pension or retirement benefits……….
Have you asked him what those other “financial objectives” are ?
Is he talking about “amount available for home borrowing” under Vested Benefits ?
@researcher
One last thing. A Canadian Citizen living in Canada is Canadian and the US has no business overstepping what is accepted international law in an attempt to impose what it wants on a Canadian who may have some US ancestry.
If the US would make renouncing as simple to understand as Canada, all these problems will go away because there will be a flood of mailed in relinquishment.
I am astonished that the US considers it a constitutional violation to require photo ID to vote because it hinders that right but puts so many barriers in front of you to get rid of clinging citizenship that you do not want.
I will not say it was done by design but getting out of the club is a major hurdle and staying in the club is a major hurdle because of the forms.
@ George
I think you totally misunderstood my comment here :
I did not say that it was easy or appropriate,fair,righteous or even logical what the IRS has been doing for the last 5 years with OVDI/P and now FATCA with the > 7.5 mio US expats.
I was one of them who they tried to feed as fish fertilizer to the FBAR revenue raiser.
I am still one of them who is fighting in appeals , post assessment about title 26 civil tax penalties and form 8833 is one of them.
These couple of hints I just dropped here could save a lot of people on :
1. CPA fees
2. double taxation in the thousands or more
It is my experience that many expats do not explore all options when it comes to treaty benefits either because they have the wrong compliance person working for them and/or are intimidated,afraid to fight the “Beast”. I understand that and sympathize with everybody here but I am not an ostrich .
I am not afraid and I taught myself many of these facts and I am proof that they have been working without paying $30K+ to the compliance industry ! Should this have been necessary – of course not –
but knowledge is power and for expats who might be in the position to use this knowledge I would strongly recommend to mention it to their CPAs or apply it in case they self-file.
Researcher,
The Canadian registered account, the Registered Disability Savings Plan (RDSP) can be used in many ways. It is a Canadian tool for financial security for people with disabilities and requires a more diverse and creative approach, involving four streams:
– Employment- both family and individual
– Disability benefits- provincial and federal
– Building assets- savings, RDSP, trusts and home ownership
– Contributions from family and friends- will and estate planning, RDSP, gifts
When planning for a secure financial future, each of these areas is explored to create a whole picture.
The RDSP is a Canadian innovative method for individuals and families to save for extraordinary expenses experienced by those with disabilities. The RDSP is a savings plan that provides additional dignity to Canadians with disabilities. The RDSP is a Canadian account for Canadians and should be available to EVERY Canadian who qualifies to save this way. The RDSP is to benefit Canadians and should not in any way be taxed by a foreign country.
@Researcher says
I know you are probably just trying to be helpful, but it can be very complicated to get things right.
National definitions and U.S. definitions of pensions plans aren’t always compatible. I am very fortunate in having an old-fashioned U.K. pension plan that matches the U.S. idea of what a pension plan is. Many U.S. persons in the U.K. aren’t so lucky and have UK Self-invested pensions plans (SIPPs) which the tax experts consider to be foreign trusts under U.S. law. To count as a pension plan, investments must meet certain criteria. One of the problems with SIPPs is that they allow people to invest much higher amounts of money per year than is acceptable under U.S. rules. The U.S. also only counts as pensions plans that are SOLELY designed for retirement savings, so if you use savings plans designed for other things to save for your retirement, that doesn’t count as a pension.
@George Says
I am not sure I would want an H&R Block at my local mall. I note that they recently came out with a press release announcing that they were expanding into the foreign market and that U.S. persons abroad shouldn’t panic because they had until June 15 to file. I was rather appalled because the firm I have doing my taxes made clear that I should file by April 15 because I owe money on some sold PFICs.
I’m advocating buying an identical document with your real details, but only the place of birth altered. It’s only for the bank, not for any other purpose.
You pay all the taxes to your own country, the only loser is the USG not getting their data.
Can anyone quote for a duplicate National Identity Card or Passport?
Someone should make a list of documents needed to open a bank account. National Identity Cards would be easier to make than a passport.
MuzzledNoMore says
“In fact, there is no such thing as FATCA “taxation”. And “still need to be reported” *to whom*? I think the following would be a more accurate wording:”
I think that it is pointless to point out at this webesite that USA tax law will not be enforced on Canadians(at the time it occurred). Elizebeth May does not even understand that ex-snowbird do not have to pay USA taxes if they stay in Canada.
“Clearly, any person with earnings or part-time residence in the US should file tax returns and pay US taxes in keeping with current bilateral agreements. However, our government must stand up for Canadian citizens who are neither working under nor representing any burden to the US governmental system”“The majority of these people have spent their lives working and paying taxes in Canada, and were unaware that these laws applied to them. Many are faced with the loss of substantial life savings due to statutory fines and cannot even avoid penalties by retroactively filing tax returns. If this weren’t enough, they are now faced with the prospect of further intrusion into their lives under a FATCA IGA.”–Elizabeth May, Green Party Leader and Member of Parliament for Saanich-Gulf Islands”
In Fact this agreement is a lot better than what is occurring in Europe. If this agreement is overturned and we have to renegotiate Canada may not get as good a deal.
Thanks, MuzzledNoMore, for the clarity on the nuance around what exactly is taxation and what is reporting. We have updated the piece: http://rdsp.com/2014/03/10/rdsps-and-fatca-warning-to-people-with-disabilities-with-any-connection-to-the-u-s/
@calgary411 and PLANRDSP: Thanks for that quick response! Wow! What a “get it done” group this is!
This PLAN strikes me as a responsible and caring organisation, looking out for members’ well-being by publishing the truth about FATCA in the first place, and then revising the text to make sure it is clear and unambiguous.
Not like CARP doing its members a disservice by telling them what a good thing the IGA is for them.